German chancellor and Irish leader agree on special Irish deal on EU debt

Irish Prime Minister Enda Kenny has claimed victory in his battle to persuade Europe to change the terms of the bank bail-out.

The Fine Gael leader flies on a state visit to Paris on Monday on the back of a phone agreement with German chancellor Angela Merkel.

The Irish Times reports that Kenny and Merkel agreed that the ‘unique circumstances’ of Ireland’s economic crisis require a special approach.

The two leaders spoke for almost 30 minutes to discuss the fall-out of the German leader’s remarks on Friday ruling out relief for ‘legacy’ bank debt.

The conversation was called for by both governments to clear up the issue.

An Irish government spokesman told the Irish Times: “They discussed the unique circumstances behind Ireland’s banking and sovereign debt crisis, and Ireland’s plans for a full return to the markets.

“The talks reiterated a June eurozone commitment to look again at the situation of the Irish financial sector with a view to further improving the sustainability of the well-performing adjustment programme.

“They recognise in this context that Ireland is a special case and that the euro group will take that into account.”

The paper says the statement gives Kenny a welcome boost ahead of his first official visit to the French capital.

French leaders have backed Dublin’s stance that some old, so-called ‘legacy’ debt would have to be borne by the European Stability Mechanism (ESM) to make good on a pledge by European leaders in June to break the link between sovereign and bank debt.

A French source told the Irish Times: “The statement of June opened the door to this – and it hasn’t been closed.”

Another source said: “It is very clear that including old debt was in the spirit of the June deal.”

The Germans had issued a statement in the wake of Merkel’s remarks in which they reiterated that talks on recapitalising European banks are ongoing.

The German statement read: “The later process of recapitalisation of the banks will be a complex one with negotiations at each stage to address important issues.

“Ireland and Germany will continue to co-operate closely in order to improve the sustainability of the Irish programme and ensure its successful outcome.”